Pages

Wednesday, April 30, 2014

China poised to pass US as world’s leading economic power this year

By Chris Giles, Economics Editor

Central Shanghai: China is likely to be the world's richest country by next year

The US is on the brink of losing its status as the world’s largest economy, and is likely to slip behind China this year, sooner than widely anticipated, according to the world’s leading statistical agencies.

The US has been the global leader since overtaking the UK in 1872. Most economists previously thought China would pull ahead in 2019.

The figures, compiled by the International Comparison Program hosted by the World Bank, are the most authoritative estimates of what money can buy in different countries and are used by most public and private sector organisations, such as the International Monetary Fund. This is the first time they have been updated since 2005.

After extensive research on the prices of goods and services, the ICP concluded that money goes further in poorer countries than it previously thought, prompting it to increase the relative size of emerging market economies.

The estimates of the real cost of living, known as purchasing power parity or PPPs, are recognised as the best way to compare the size of economies rather than using volatile exchange rates, which rarely reflect the true cost of goods and services: on this measure the IMF put US GDP in 2012 at $16.2tn, and China’s at $8.2tn.

In 2005, the ICP thought China’s economy was less than half the size of the US, accounting for only 43 per cent of America’s total. Because of the new methodology – and the fact that China’s economy has grown much more quickly – the research placed China’s GDP at 87 per cent of the US in 2011.

For 2011, the report says: “The US remained the world’s largest economy, but it was closely followed by China when measured using PPPs”.

Financial crisis in China has become inevitable. If it happens soon, its effects can be contained. But, if policy makers use further doses of stimulus to postpone the day of reckoning, a severe collapse will become unavoidable within a few years.

The country is in the middle of by far the largest monetary expansion in history. On one widely used measure, M2, its money supply has tripled in the past six years, an expansion four times as large as that of the US over the same period.

With the IMF expecting China’s economy to have grown 24 per cent between 2011 and 2014 while the US is expected to expand only 7.6 per cent, China is likely to overtake the US this year.

The figures revolutionise the picture of the world’s economic landscape, boosting the importance of large middle-income countries. India becomes the third-largest economy having previously been in tenth place. The size of its economy almost doubled from 19 per cent of the US in 2005 to 37 per cent in 2011.

Russia, Brazil, Indonesia and Mexico make the top 12 in the global table. In contrast, high costs and lower growth push the UK and Japan further behind the US than in the 2005 tables while Germany improved its relative position a little and Italy remained the same.

The findings will intensify arguments about control over global international organisations such as the World Bank and IMF, which are increasingly out of line with the balance of global economic power.

When looking at the actual consumption per head, the report found the new methodology as well as faster growth in poor countries have “greatly reduced” the gap between rich and poor, “suggesting that the world has become more equal”.

The world’s rich countries still account for 50 per cent of global GDP while containing only 17 per cent of the world’s population.

Having compared the actual cost of living in different countries, the report also found that the four most expensive countries to live in are Switzerland, Norway, Bermuda and Australia, with the cheapest being Egypt, Pakistan, Myanmar and Ethiopia.

Sunday, April 27, 2014

I had to complete several projects here on the house. Things may change in our lives and the house had to be ready to sell. It is a big responsibility. The key to everything is to hire good people. I have a good crew that I have worked with for several years. When I need a new specialist, I go to www.yelp.com. Once the good people are chosen, one needs to pay them decent wages and treat them nicely. Also one needs to write good reports on them when they do a great job.

My dear friends 20 years ago today it was a sunny and cool morning in Port Elizabeth, South Africa. It was also a historical day. The first all-race election was being held. Thanks to the African National Congress, I was invited to vote in the election despite the fact that I was not a citizen of South Africa. A captain in the South African Army came to my door. He told me that he had been instructed to take me to the polls so that I could vote. We rode to the polling place in his 3-series BMW. There were armed soldiers all over the place. But things were mellow and calm. I felt no fear at all. The ballots all had pictures of the candidates because so many people could not read and write. I cast my ballot and was driven back home. In the evening I watched the election returns. Nelson Mandela won. The party afterwards throughout South Africa was incredible! My most unforgettable moment was a television interview that I saw. An African woman was being interviewed. She made the following comment:

"Now we will no longer be treated like children."

I owe a deep debt of gratitude to Nelson Mandela and his right-hand woman Barbara Joyce Masekela for making it possible for me to participate in this incredible moment in history.

Strip private banks of their power to create money

The giant hole at the heart of our market economies needs to be plugged

Printing counterfeit banknotes is illegal, but creating private money is not. The interdependence between the state and the businesses that can do this is the source of much of the instability of our economies. It could – and should – be terminated.

I explained how this works two weeks ago. Banks create deposits as a byproduct of their lending. In the UK, such deposits make up about 97 per cent of the money supply. Some people object that deposits are not money but only transferable private debts. Yet the public views the banks’ imitation money as electronic cash: a safe source of purchasing power.

MARTIN WOLF

Banking is therefore not a normal market activity, because it provides two linked public goods: money and the payments network. On one side of banks’ balance sheets lie risky assets; on the other lie liabilities the public thinks safe. This is why central banks act as lenders of last resort and governments provide deposit insurance and equity injections. It is also why banking is heavily regulated. Yet credit cycles are still hugely destabilising.

What is to be done? A minimum response would leave this industry largely as it is but both tighten regulation and insist that a bigger proportion of the balance sheet be financed with equity or credibly loss-absorbing debt. I discussed this approach last week. Higher capital is the recommendation made by Anat Admati of Stanford and Martin Hellwig of the Max Planck Institute in The Bankers’ New Clothes.

A maximum response would be to give the state a monopoly on money creation. One of the most important such proposals was in the Chicago Plan, advanced in the 1930s by, among others, a great economist, Irving Fisher. Its core was the requirement for 100 per cent reserves against deposits. Fisher argued that this would greatly reduce business cycles, end bank runs and drastically reduce public debt. A 2012 study by International Monetary Fund staff suggests this plan could work well.

First, the state, not banks, would create all transactions money, just as it creates cash today. Customers would own the money in transaction accounts, and would pay the banks a fee for managing them.

Second, banks could offer investment accounts, which would provide loans. But they could only loan money actually invested by customers. They would be stopped from creating such accounts out of thin air and so would become the intermediaries that many wrongly believe they now are. Holdings in such accounts could not be reassigned as a means of payment. Holders of investment accounts would be vulnerable to losses. Regulators might impose equity requirements and other prudential rules against such accounts.

Third, the central bank would create new money as needed to promote non-inflationary growth. Decisions on money creation would, as now, be taken by a committee independent of government.

Finally, the new money would be injected into the economy in four possible ways: to finance government spending, in place of taxes or borrowing; to make direct payments to citizens; to redeem outstanding debts, public or private; or to make new loans through banks or other intermediaries. All such mechanisms could (and should) be made as transparent as one might wish.

The transition to a system in which money creation is separated from financial intermediation would be feasible, albeit complex. But it would bring huge advantages. It would be possible to increase the money supply without encouraging people to borrow to the hilt. It would end “too big to fail” in banking. It would also transfer seignorage – the benefits from creating money – to the public. In 2013, for example, sterling M1 (transactions money) was 80 per cent of gross domestic product. If the central bank decided this could grow at 5 per cent a year, the government could run a fiscal deficit of 4 per cent of GDP without borrowing or taxing. The right might decide to cut taxes, the left to raise spending. The choice would be political, as it should be.

Opponents will argue that the economy would die for lack of credit. I was once sympathetic to that argument. But only about 10 per of UK bank lending has financed business investment in sectors other than commercial property. We could find other ways of funding this.

Our financial system is so unstable because the state first allowed it to create almost all the money in the economy and was then forced to insure it when performing that function. This is a giant hole at the heart of our market economies. It could be closed by separating the provision of money, rightly a function of the state, from the provision of finance, a function of the private sector.

This will not happen now. But remember the possibility. When the next crisis comes – and it surely will – we need to be ready.

Monday, April 21, 2014

It was a beautiful and a sunny Easter. Elena and I went for a hike at Robert W. Crown Memorial State Beach in Alameda, California. We took the dogs along. We had an incredible hike and discovered a magical part of Alameda that we did not know existed. The town made us feel like we were in a coastal city in Southern California. After a great hike with the dogs we explored downtown Alameda. We found a Mexican restaurant called La Penca Azul. It's a beautiful venue and large. Even at one thirty in the afternoon it was full of people and we had to wait for a while. When we did get a table we had an excellent meal and drinks. This was one of those beautiful and unforgettable days that we will always treasure.

On Tax Day, Taxpayers Pick up $8 Billion Tabfor Walmart and the Walton Family

Report Provides State-by-State Estimates of Revenue Losses

WASHINGTON — Walmart and the Waltons—America’s largest employer and richest family—received tax breaks and subsidies worth an estimated $7.8 billion in 2013, according to a report released today by Americans for Tax Fairness. Released for Tax Day, when millions of American taxpayers and small businesses pay their fair share to support critical public services and the economy, the report shows Walmart and the Waltons have their own set of rules to game the system and get taxpayers to pick up the tab.

Walmart, which was number one on the Fortune 500 in 2013, had $16 billion in profits last year on revenues of $473 billion. The Walton family, which own more than 50 percent of Walmart shares, reaps billions in annual dividends from the company. The six Walmart heirs have a net worth of $148.8 billion—more wealth than 49 million American families combined.

The report shows that $7.8 billion is enough to hire 105,000 new public school teachers if Walmart paid its fair share of taxes and didn’t call on taxpayers to subsidize its low wages.The report identifies the annual subsidies and tax breaks to Walmart and the Waltons, which include the following:

· Walmart receives an estimated $6.2 billion annually in mostly federal taxpayer subsidies. Walmart pays its employees so little that many of them rely on food stamps, Medicaid and other taxpayer-funded programs.

· Walmart avoids an estimated $1 billion in federal taxes each year. It uses tax breaks, including a strategy known as accelerated depreciation that allows it to write off capital investments considerably faster than the assets actually wear out.

· The Waltons avoided an estimated $607 million in federal taxes on their Walmart dividends which are taxed at a much lower rate than income from salaries and wages.

The report also includes state-by-state data on the cost of the tax breaks used by Walmart and the Walton family. In addition, it estimates Walmart revenue generated from sales of groceries to SNAP (food stamp) recipients in each state.

“This report shows that Americans pay a lot more than they think at Walmart,” said Frank Clemente, Executive Director at Americans for Tax Fairness. “The real cost of shopping at Walmart is much higher than what shows up on your cash register slip. Walmart’s exploitation of large taxpayer subsidies and tax loopholes means higher taxes for everyone else and less money to invest in schools and communities.”

“The most troubling findings in this report are how much Walmart rakes in selling its groceries to food stamps beneficiaries, while it fleeces taxpayers who are subsidizing the low wages and poor benefits Walmart pays its employees,” said Clemente. The report found that Walmart had 18 percent of food stamps sales last year, which were worth $13.5 billion, while its employees received $6.2 billion in taxpayer assistance from food stamps, Medicaid and other income- support programs.

“Major companies and leaders like Walmart and the Waltons are taking advantage of the tax system and leaving taxpayers to foot the bill,” said Clemente. “It’s time they paid their fair share like the rest of us do.”

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

Is the flat tax worth considering? Probably not, because it’s based on the assumption that the complexity of the tax code is significantly reduced by going to a single rate. The real compleities in the tax code have nothing to do with multiple tax brackets. The idea behind an income tax is to have a tax that to some extent reflects ability to pay. The flat tax is based on the simplistic notion that the relationship between income and ability to pay is linear, or that, for some reason, any tax that is not linear funciton of income, is unfair. It’s possible to have a simple tax code that is not flat just as easily as to have one that is.

I think the point is corporations receive many more subsidies than the poor from our government, it is just that they are better at hiding the fact that it is a subsidy.

How sad that the biggest corporation in the US survives and dominates only because it can hire its workers at a discount because taxpayers subsidize their wages. I thought the whole point of capitalism was to compete in the market place. Capitalism as Walmart practices it is as flawed as the communist system you are trashing.

Accelerated depreciation only allows a company to defer taxes, not avoid them, just as a regular 401k contribution allows an individual to defer taxes into the future. If Walmart is still using the assets after fully depreciating on an accelerated schedule, then the tax shield will have been consumed and they will begin paying a higher rate all things equal. I have trouble believing any outfit that misrepresents simple GAAP principles for its own agenda. And I support thexpertisin – these are not Walmart/Walton specific breaks, and should not be held against them. Many of these codes received bipartisan support to spur hiring and economic growth. If you have an issue, take it up with the writers of the code.

Your argument is completely ad hominem, and therefore empty. If you want to discuss the virtues or drawbacks of progressive taxation or taxation of inheritance, present a logical argument backed by empirical data. It’s a mistake to reject a policy outright just because you disapprove of the author (Marx in this case, but it could be Adam Smith or any other philosopher in another circumstance). After all, even a broken clock is right twice a day. BTW, I was well trained as a scientist, not a Marxist.

I think the purpose of the stepped progressive income tax was to quell uprisings for a real Marxist government at a time when IWW members would flood towns (and towns would respond with massacres, e.g. Ludlow, Centralia, Everett). The greater national purpose of a high progressive tax is to prevent overthrow of democratic process through vote buying and to “nudge” capitalists more towards productive investment (railroads, factories, cars, planes, tighty whiteys and tube socks) and away from financialized investment as unproductive investment. At the time it was considered harmful to inherit great wealth, seen as a way to create useless idlers. Those were the days, I guess.

Corporate tax rate should be a function of C-level salaries and all US multinationals should be levied especially for ‘Defense’ (read State Dept, Pentagon, intelligence) in relation to total assets held abroad.

All Pro Empire Americans should feel free to get in on the looting by enlisting.~~~“How sad that the biggest corporation in the US survives and dominates only because it can hire its workers at a discount because taxpayers subsidize their wages.”

Quite. Though, you may want to examine the advantage they derive from their Supply Chain, and our Trade Policies, as well..

But, at the EOD, remember, Boycotts work. Revenue, ultimately, comes from the Customer.

If Walmart had lobbied for food stamps, accelerated depreciation (a deferral of tax), Medicaid etc. then I would be upset. But it appears they are just complying with the tax code (as abominably written) and availing their employees of government programs (witness all the folks encouraging people to sign up under Obamacare). We should go after folks disobeying the laws, not those trying to comply with them…and if we don’t like the effect of the laws…we should change the laws. It seems silly to say “hey I passed this program and now you are using it”.

About Me

When I was a very young man I had an incredible grandmother named Sarah Elizabeth Walters. She told me the following words: "Son don't let the grass grow under your feet." I took those words to heart and went out to see the world. My life has been ana adventure all over the world. I have lived on six of the seven continents. I have been lucky to live this long.